The report notes that growth recovered from a two-decade low of 1.3 percent in 2016 to an estimated 2.4 percent in 2017, and is projected to improve further to 3.6 percent in 2020. The report finds that certain sectors show potential for high growth due to productivity gains or consumer demands. Food production and agriculture stand out in a region that continues to import food while a rapidly urbanizing population requires more choice. Africa’s needs in infrastructure remain vast, and range from power to transport to sanitation, among other areas.

Recommendations

Sub Saharan Africa (SSA)’s regional economy has quintupled in size from USD 300 billion in 2000 to USD 1.6 trillion in 2017, and is expected to surpass USD 2 trillion by 2020. Apart from the rapidly expanding market, favorable regional conditionshave spurred improvements in the business environment, and provide leads to where private sector participation can prove profitable:

A young and growing labor force, and urbanization can support business. Africa has a young and growing population that is expected to contribute to a large labor force over time, and propel urbanization rates in the region. Private sector initiatives in affordable housing and efficient infrastructure for greater mobility in cities can be profitable in the medium to long-term, with the urban population projected to double in the next 25 years. Greater suburban economic activity can also promote growth by enhancing productivity and innovation flows in and around cities.

Improved business climate is reported across the region. This largely due to business regulation reforms initiated, increasing capital flows to the private sector (particularly in the natural resources and financial services sectors), and increased remittance inflows.

Growing middle class presents a growing market for consumer goods and services. It is anticipated that SSA’s middle-and high-income population will grow close to 160 million. These market segments will most likely increase spending on more than just basic goods such as food and beverages, but also on transportation and ICT. There is an observed trend of increased consumption in all sectors.

Opportunities to fill in development gaps. Urgent need for private sector support to improve infrastructure—power, roads, transportation systems, sanitation—domestic capital markets, and public-private partnership projects to boost the region’s economic potential. International financing agencies such as the International Finance Group, World Bank, International Monetary Fund, and Multilateral Investment Guarantee Agency (MIGA) are putting in critical private sector investments in a number of sectors.

This report by IFC presents an economic overview of SSA. Recent economic developments—increased remittance inflows, recovering commodity prices, service sector expansion, improved access to international capital markets, and countries’ improving “Doing Business” scores—have contributed to rapid growth in the region after the 2016 recession. The medium-term regional outlook is largely positive, with growth forecasts pegged at 3.2% in 2018 to 3.6% in 2020. The report notes, however, the different growth patterns in the region, with some economies growing faster (i.e., Ethiopia, Côte d’Ivoire, Senegal, Tanzania, and Ghana having over 6% growth in the last few years), while the nation’s biggest economies like Nigeria, Angola and South Africa, and other non-resource intensive, agricultural countries have remained stable.

There is a considerable scope for boosting SSA’s potential, especially in agriculture and disruptive technologies, which are deemed drivers of growth, and key areas for private sector investment. Agriculture accounts for one-third of the region’s GDP, and employs a large share of the population. The fast-growing consumer market for agricultural goods, as well as existing arable lands and potential for productivity expansion in the sector, offer tangible business opportunities. The innovative use of existing technologies like mobile phones and other ICT can be leveraged for new processes and products, and offers a wide range of potential application. Entrepreneur-driven innovation and technology spillovers are disrupting traditional ways technology is being used in the region. This has led to leapfrogging in certain sectors such as mobile money, pay-as-you-go off-grid solar power, and financial services, and non-linear rapid development in some countries.

The report also features case studies to show how international finance instrumentalities such as the International Finance Group, the World Bank, International Monetary Fund, and Multilateral Investment Guarantee Agency (MIGA) are providing assistance to private sector initiatives in key sectors like power and energy (Azito and CIPREL in Côte d’Ivoire; Sankofa Gas Project in Ghana, and Mobisol in East Africa, and 13 private companies in Egypt), infrastructure development (Transport Eiffage Toll Road in Senegal), housing mortgage financing (Caisse Régionale de Refinancement Hypothécaire in West Africa), waste management (Metalco in Zambia), and agriculture (Afriflora in Ethiopia and Beef production in Magagascar).

While SSA is opening up and becoming more business friendly, the region is still facing major challenges such as the lack of infrastructure, lack of access to formal and secure financing (savings, credit, insurance), sociopolitical volatility, and increasing debt burden in a number of countries. Financing was highlighted as key to unlocking SSA’s economic potential, and developing domestic capital markets is needed to generate alternative sources of investment funding across Africa.